Market participants looking forward to it the upcoming Federal Open Market Committee (FOMC) meeting, which is expected to play a decisive role in shaping the short-term outlook for Bitcoin and other digital assets. The focus is on the possibility of interest rate cuts, and many traders and investors have been talking about this for some time.

While the exact scale of the rate cut has not yet been confirmed, there is widespread expectation that the FOMC will choose either a 25 basis point cut or a deeper 50 basis point cut. The FOMC decision could either lead to a news sell-off for risk assets like Bitcoin or give them a boost, according to a prominent economist.

Economist Predicts Massive 'Selling News' Event

In recent conversation Steve Hanke, an economist at Johns Hopkins University, shared with The Block his take on the potential impact of the Federal Reserve’s expected interest rate cut on the cryptocurrency sector. According to Hanke, the 25 basis point rate cut that many investors are currently anticipating could ultimately lead to a “news sell” event for the broader crypto industry.

He explained that the market had already priced in the possibility of such a decline and was absorbed by the price action of several investment markets. In fact, once the decline is officially announced, the market reaction could be disappointing, potentially triggering a wave of sell-offs among cryptocurrencies.

Unlike the more expected 25 basis point cut, Hanke noted that the Fed's 50 basis point rate cut has not yet been fully priced into the market. Thus, a 50 basis point Fed rate cut could unexpectedly “give the market a lift.”

What to Expect in Light of the Upcoming FOMC Meeting

Inflation in the U.S. is starting to cool, and Federal Reserve Chairman Jerome Powell said last month that “it’s time” to cut rates. Interest rates are currently in the range of 5.25% to 5.50%, the highest in 23 years. In the context of the Federal Open Market Committee (FOMC), interest rates refer to changes in the federal funds rate. The Fed raises or lowers interest rates primarily to stimulate economic growth and control inflation.

The Fed's interest rate cuts could theoretically create a favorable environment for cryptocurrencies. Lower rates mean that traditional savings and fixed-income investments (like bonds) offer lower returns, encouraging risk-averse investors to turn to cryptocurrencies.

However, given the current market situation, forecasting the market reaction to the rate cut easier said than done at the time of writing. This is because the expected rate cut is one of the factors that contributed to Bitcoin's rally earlier this year, leading to speculation that the rate cut is already priced in.

At the time of writing Bitcoin is trading at around $60,000, up 3.5% in 24 hours.